WASHINGTON, D.C. — The Federal Open Market Committee voted unanimously Wednesday to leave the benchmark rate unchanged, releasing a 412-word policy statement that differs from December’s by exactly four words, three of which are the definite article ‘the.’
The fourth word was ‘somewhat,’ inserted before ‘elevated,’ which analysts spent the remainder of the trading session interpreting as either a hawkish pivot, a dovish capitulation, or, per one note out of Morgan Stanley, ‘a typo Jay didn’t catch.’
‘Somewhat is doing a lot of work in there,’ said Renata Pell, chief rates strategist at Cantilever Macro, who had pre-positioned a client deck around five possible adverbs and is now redoing slides 14 through 27. ‘We had moderately. We had still. We did not have somewhat. Somewhat reopens the entire framework.’
Two-year yields moved 11 basis points in the eight minutes after release, then moved them back, then moved them three quarters of the way again, in what one Citi desk head described as ‘the bond market doing a kind of nervous foot-tapping thing.’ He was, at the time, eating a chopped salad with the lid still on, stabbing through the plastic to save the four seconds it would have cost to remove it.
The press conference began at 2:30 p.m. sharp. Chair Jerome Powell, wearing the same navy tie he has worn to every January meeting since 2019, said the word ‘data-dependent’ nine times, ‘patient’ six times, and ‘we are not on a preset course’ in three slight grammatical variations, including one in which he forgot ‘preset’ and substituted ‘pre-committed,’ triggering a 4-point S&P rally that lasted until he clarified.
Asked by a reporter whether the change from ‘elevated’ to ‘somewhat elevated’ implied a March cut was on the table, Powell paused, drank from a glass of water, set the glass back down on the exact ring of condensation it had previously made, and said the committee would ‘continue to assess incoming information.’ A second reporter, sensing weakness, asked the same question rephrased; Powell drank again.
Inside hedge funds across Greenwich and Midtown, the reaction was muted, in the sense that traders sat very still in Aeron chairs and stared at terminals with the expression of men watching a slow gas leak. One PM at a multi-strat shop in Stamford was observed eating a single peanut M&M every time Powell said ‘gradual.’ By the end of the Q&A he had eaten the bowl and started on a colleague’s.
Equities closed mixed. The Russell 2000, which had spent the morning pricing in three cuts, ended the day pricing in two and a half, a position that exists nowhere on the actual yield curve but which CNBC chyrons agreed was ‘the new consensus.’ Apple, which reports earnings tonight, was up 0.4 percent on no news whatsoever.
The Fed’s next statement is due March 18. Pell, at Cantilever, said her base case is that it will change between two and six words from this one, none of which will be ‘somewhat,’ and at least one of which will be ‘the.’ Her clients, she added, are paying her quite a lot for this view.